Price elasticity of demand is a responsiveness of quantity demanded due to change in price of a commodity. 2. What is meant by price elasticity of demand? [5marks]

Price elasticity of demand is a responsiveness of quantity demanded due to change in price of a commodity. It can be calculated using a formula.

% CHANGE IN QUANTITY DEMANDED PED = % CHANGE IN PRICE

There are five types of elasticity where the value ranges from 0 to infinity. They are;  Perfectly inelastic ( elasticity value is equal to 0)  Perfectly elastic ( elasticity value is equal to infinity)  Elastic ( elasticity value is greater than 1)  Inelastic ( elasticity value is less than 1)  Unitary elastic ( elasticity value is equal to 1) Note: - Candidates can include simple diagrams of different types of elasticity.

3. Discuss why the price elasticity of demand for the items mentioned in the article might differ. [5marks]

Note: - Here, no need of definition since in part –c definition of elasticity has been given) The items mentioned in the article are clothing and footwear, together with certain perfumes, hair-styles, cell-phones and household appliances. First of all clothing and foot wear can be classified as a basic human need where people find very difficult to live without that. This means any person is ready to buy these products at any price since they did not have a choice. So, these products are inelastic product where a change in price will have a very small or sometime no effect on quantity demanded. On the other hand, perfumes, hair-styles, cell-phones and household appliances are products which have lots of substitutes available in the market. This means at any time consumers can choose between these substitutes which are known as elastic product where a change in price will have a significant impact on price. A clear route to O’level success in Economics – First Edition- By Alim

2 In my opinion, the price elasticity of demand for items mentioned in the article differs because some are necessities and some have lots of substitutes.

4. Define price elasticity of demand and suggest why different goods have different price elasticity? [5marks]

Price elasticity of demand can be defined as a responsiveness of quantity demand due to change in price of the product. There are various reasons why different goods have different price elasticity of demand. Firstly, some goods are necessities like gas, food, clothing etc where people do not have any choice for consumption. This means change in price will not have much effect on quantity demand. These goods are inelastic goods. Secondly, some goods are luxuries such as cars where there is availability of many substitutes in the market. This means change in price will have a significant effect on quantity demand. These goods are elastic goods.

5. Discuss whether knowledge of price elasticity of demand is of use to a company selling holiday tours. [5marks]

Note: - Here, no need of definition since in part –c definition was given. This concept is used for producers to expect the sales and revenues of their companies. First of all, elastic products are those which have variety of substitutes where consumers have variety of choice in the market. So, decrease in the price will increase the revenue for these products. On the other hand inelastic products are those which do not have variety of substitutes and those goods which is known as necessities. So consumers have to consume these goods at any price. The revenue for these products can be increased by increase in the price of these products. Eventually, holiday tours would have an elastic demand since there are many people doing the same business which means there are lots of substitutes. So, producer has to decrease the price in order to increase their revenue in this business.

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20. State the law of demand.
21. Why does demand curve slope downwards?
22. What are the types of demand?
23. Define price demand.
24. Define income demand
25. Define cross demand.
26. Define autonomous demand.
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